Although membrane-bounded compartments are commonly considered a unique eukaryotic characteristic, many species of bacteria have organelles. Compartmentalization is well studied in eukaryotes; however, the molecular factors and processes leading to organelle formation in bacteria are poorly understood. We use the magnetosome compartments of magnetotactic bacteria as a model system to investigate organelle biogenesis in a prokaryotic system. The magnetosome is an invagination of the cell membrane that contains a specific set of proteins able to direct the synthesis of a nanometer-sized magnetite crystal. A well-conserved region called the magnetosome island (MAI) is known to be essential for magnetosome formation and contains most of the genes previously implicated in magnetosome formation. Here, we present a comprehensive functional analysis of the MAI genes in a magnetotactic bacterium, Magnetospirillum magneticum AMB-1. By characterizing MAI deletion mutants, we show that parts of its conserved core are not essential for magnetosome biogenesis and that nonconserved genes are important for crystal formation. Most importantly, we show that the mamAB gene cluster encodes for factors important for magnetosome membrane biogenesis, for targeting of proteins to this compartment and for several steps during magnetite production. Altogether, this genetic analysis defines the function of more than a dozen factors participating in magnetosome formation and shows that magnetosomes are assembled in a step-wise manner in which membrane biogenesis, magnetosome protein localization, and biomineralization are placed under discrete genetic control.